Nigeria’s local-currency bonds are on a roll, rising for the last eight days and driving their yields below Turkey’s for the first time in more than two years.
The average rate on Nigerian government bonds has fallen around 400 basis since an August-peak to 13 percent. Yields are now 100 basis points below the central bank’s benchmark interest rate of 14 percent, where its been held since July 2016.
Investors have piled into the naira market thanks to slowing inflation, a stable currency and rising Brent crude prices, which climbed about 25 percent in the past six months to more than $70 a barrel. In contrast, they’ve turned bearish on Turkey, which has the worst-performing local bonds in emerging markets this year, because of accelerating inflation and loose monetary policy.
Nigeria’s monetary-policy chief, Governor Godwin Emefiele, may be tempted to commence his long-touted easing cycle and help revive an economy that has faltered since the 2014 oil crash. While that would reduce the attractiveness of naira assets, Nigerian yields are still high relative to other major emerging markets. Aside from Turkey, Argentina and Egypt’s bonds are the only ones to yield more in the Bloomberg Barclays EM Local Currency Index.